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Everything posted by EdLaFave

I've been studying how to minimize or eliminate taxation in retirement. To more deeply understand what I'm teaching myself, I've done a write up that could be used to teach others. For anybody willing to dig into a wall of text, I invite you to correct any inaccuracies you find and to add additional helpful information.
Terminology
In reality, many of the terms I use throughout this text have fairly complex definitions. I wanted to keep things simple and so I'm using these terms in a fairly limited scope:
Roth Conversion = Money moved from a Traditional account to a Roth account.
Capital Gain = Profit generated by selling shares in a Taxable Account.
Ordinary Income = Unqualified Dividends in a Taxable Account + Roth Conversions.
Qualified Income = Qualified Dividends in a Taxable Account + (long term) Capital Gains from a sale in a Taxable Account...generally given preferential tax rates.
Deductions = A deduction made to Ordinary Income before calculating taxes. The most common is the $24,000 Standard Deduction for married couples.
Taxable Income = Ordinary Income - Deductions + Qualified Income.
Progressive Taxation = The concept that taxation is broken into brackets where your first dollars are taxed at the lowest rate, the next Y dollars are taxed at a higher rate, the next Z dollars at taxed at an even higher rate, and so on.
0% Tax on Qualified Income
You've probably been told that Qualified Income is taxed at 15%, but that's an oversimplification. The tax rate applied to Qualified Income isn't flat, it's progressive in nature. Qualified Income in the $0-$77,200 bracket is taxed at 0%, Qualified Income in the $77,201-$479,000 bracket is taxed at 15%, and additional Qualified Income is taxed at 20%. However, your Deductions and Ordinary Income play a role in determining which brackets your Qualified Income falls in and I think this is best explained through a few examples:
Example #1 --- 15% Bracket
Standard Deduction = $24,000
Ordinary Income = $101,200
Qualified Income = $50,000
When you subtract the Standard Deduction from the Ordinary Income you're left with $77,200. That amount will fill up the entire 0% bracket, which means all $50,000 of Qualified Income will spill over into the 15% tax bracket. As a result the Qualified Income will generate a $7,500 tax bill.
Example #2 --- 0% Bracket
Standard Deduction = $24,000
Ordinary Income = $25,000
Qualified Income = $76,200
When you subtract the Standard Deduction from the Ordinary Income you're left with $1,000. That amount partially fills up the 0% bracket, which leaves us with $76,200 of space in the 0% bracket. As luck would have it the Qualified Income is exactly $76,200, which will will fill up the entire 0% bracket. As a result the Qualified Income will generate a $0 tax bill.
Example #3 --- 0% and 15% Bracket
Standard Deduction = $24,000
Ordinary Income = $25,000
Qualified Income = $77,200
This example is identical to the previous except there's an extra $1,000 of Qualified Income. Since the 0% bracket was already full, that $1,000 will spill over into the 15% bracket. As a result the Qualified Income will generate a $150 tax bill.
Example #4 --- It's a Trap
Standard Deduction = $24,000
Ordinary Income = $0
Qualified Income = $101,200
You're probably tempted to apply the Standard Deduction to the Qualified Income, which would be reduced to $77,200. That would allow you to fill up the entire 0% bracket and get away tax-free. As you may have guessed by now, the Standard Deduction can only be used to reduce Ordinary Income. That means the Qualified Income will fill up the 0% bracket and $24,000 will spill over into the 15% bracket. As a result the Qualified Income will generate a $3,600 tax bill.
Key Points
The main points you should walk away with are:
You want to have enough Ordinary Income to fully utilize your Deductions.
Beyond that, minimizing your Ordinary Income will maximize the tax-free portion of your Qualified Income.
The Capital Gains component of Qualified Income is based on profit, which you means you can withdraw quite a bit of money from a Taxable Account without generating an equal amount of Qualified Income. For example, if your shares are worth twice as much as you bought them for, then you'd be able to withdraw $60,000 from a Taxable Account and only generate $30,000 of Qualified Income.
The progressive tax brackets associated with Qualified Income are more complicated than they may seem. You can't see that the 0% bracket has a $77,200 limit, generate $77,200 of Qualified Income, and expect that you won't generate a tax bill. You have to account for your Deductions, Qualified Income, Ordinary Income, and how Dividends are often split between the two
0% Tax on Ordinary Income
Our previous discussion regarding minimizing (or eliminating) taxation on Qualified Income alluded to the fact that it's also possible to minimize (or eliminate) taxation on Ordinary Income as well. This is possible if your Ordinary Income is less than or equal to your Deductions (Tax Credits play a role too, but we'll save that for later).
Example #1 --- Ideal Case
Standard Deduction = $24,000
Ordinary Income = $24,000
When you subtract the Standard Deduction from the Ordinary Income, you're left with $0. As a result the Ordinary Income will not generate a tax bill.
Example #2 --- Exceeding the Standard Deduction
Standard Deduction = $24,000
Ordinary Income = $43,050
When you subtract the Standard Deduction from the Ordinary Income, you're left with $19,050 which fills up the 10% bracket. As a result the Ordinary Income will generate a $1,905 tax bill.
Example #3 --- Wasting the Standard Deduction
Standard Deduction = $24,000
Ordinary Income = $5,000
When you subtract the Standard Deduction from the Ordinary Income, you're left with a negative number. As a result the Ordinary Income will not generate a tax bill, but you've left $19,000 of Deductions unused. As far as I know, there is no other way to make use of it, so it just goes to waste.
Summary of 0% Taxation
We've learned that taxes are assessed on both Ordinary Income as well as Qualified Income. Furthermore, we've learned that it's possible to receive a 0% tax rate on both Ordinary Income and Qualified Income. Usually our income during our working years is high enough that it spills beyond the 0% tax brackets. However, during retirement we have the ability to limit our income to the 0% tax brackets!
Consider the three types of accounts you're likely to have in retirement:
A Roth IRA allows money to grow tax free each year and money can be withdrawn tax-free whenever you choose. Since this account is beyond the reach of the IRS, we'll want to focus on extracting as much tax-free money from the other accounts before we begin to deplete this account.
A Traditional IRA allows money to grow tax-free, but withdrawals are treated as Ordinary Income and therefore may generate a tax bill. Additionally, when you're old enough, you'll be forced to take a Required Minimum Distribution (RMD) every year. The fact that you can't control the size of an RMD means that it may force you into higher tax brackets for both Ordinary Income as well Qualified Income.
A Taxable Account generates dividends every year, which are split between Qualified Income and Ordinary Income depending on how the mutual fund is managed. Additionally, withdrawals generate Qualified Income based on the Capital Gains tied to the shares you sold in the account.
Using all of this knowledge allows us to develop a basic game plan to eliminate taxation in retirement:
The Dividends from your Taxable Account will consume part of your Deductions, but the remaining portion of the Deductions should be used to move as much money as possible from your Traditional IRA to your Roth IRA (Roth Conversion), without having to pay any tax.
Reducing the balance of your Traditional IRA minimizes a significant source of future taxation.
You'll want to take advantage of this right away. In future years, your Deductions may be partially or entirely consumed when you're "forced" to draw on other forms of Ordinary Income (Social Security, RMDs, etc), which would severely impact (or eliminate) your ability to perform tax-free Roth Conversions.
Always sell enough from your Taxable Account to fill up the 0% bracket associated with Qualified Income.
Given that nearly all of your Ordinary Income is being used to perform tax-free Roth Conversions, you'll likely have to sell a portion of your Taxable account just to pay the bills.
However, when you sell enough from your Taxable Account to fill up the 0% bracket, you'll likely have far more money than you actually need for living expenses. In that case, you'd immediately invest the excess money in a similar mutual fund. This is referred to as "Tax Gain Harvesting" because at no tax cost to you, you're effectively reducing the amount of Capital Gains in your Taxable Account. This will be useful later on if you're ever forced to exceed the 0% tax bracket because you'll be able to sell shares that have minimal (possibly no) capital gains.
I don't want to get into the details, but you'll need to familiarize yourself with something called "Specific Identification" when selling shares from your Taxable Account.
Example
Now we have a rough understanding of how the tax code works and how we can utilize that knowledge to avoid taxation in retirement, let's try to gain a more concrete understanding through the example of a hypothetical married couple. Suppose our couple's annual living expenses are $60,000 and suppose they have a Taxable Account, Traditional IRA, and Roth IRA.
Throughout the year their Taxable Account generated $15,000 of Dividends, which is divided into $13,000 of Qualified Dividends and $2,000 of Unqualified Dividends. As of this moment, our couple's tax situation is as follows:
Ordinary Income = $2,000
Qualified Income = $13,000
As we've already learned, the Standard Deduction allows for $24,000 of tax-free Ordinary Income per year. Our couple understands that their $2,000 of Unqualified Dividends count towards that limit and they decide to convert $22,000 from their Traditional IRA to their Roth IRA. After doing that, our couple's tax situation is as follows:
Ordinary Income = $24,000 (2k + 22k)
Qualified Income = $13,000
Standard Deduction = $24,000
Taxable Income = $13,000
It's fantastic that our couple was able to convert $22,000 to their Roth IRA without paying taxes, but how will they cover their $60,000 yearly expenses? They've only received $15,000, so they'll have to turn to their Taxable Account to cover the $45,000 shortfall. Let's simplify the math by assuming everything they own in their Taxable Account is worth 2x as much as they paid for it. Therefore, when they withdraw $45,000 from their Taxable Account it'll generate $22,500 of Capital Gains. As of this moment, our couple's tax situation is as follows:
Ordinary Income = $24,000 (2k + 22k)
Qualified Income = $35,500 (13k + 22.5k)
Standard Deduction = $24,000
Taxable Income = $35,500
If our couple were to stop right now, they wouldn't owe any tax at all. Their Ordinary Income wouldn't be taxed because it is less than or equal to the Standard Deduction and their Qualified Income wouldn't be taxed because their Taxable Income is less than or equal to the $77,200 limit of the 0% tax bracket for Qualified Income. However, our couple wants to prepare for future tax years that may require them to increase spending and potentially push them beyond the 0% tax brackets that they're currently enjoying. They know that in those circumstances they could always utilize their Roth IRA for tax-free income, but they'd like to give themselves another option because utilizing the Roth account should be a last resort.
With this in mind, our couple decides to make use of the remaining room in the 0% tax bracket by Tax Gain Harvesting. Currently their Taxable Income is $35,500, which means they can realize another $41,700 of Capital Gains and still remain below the $77,200 limit of the 0% bracket. Therefore, our couple decides to sell $83,400 from their Taxable Account and immediately reinvest that money in a similar fund. As of this moment, our couple's tax situation is as follows:
Ordinary Income = $24,000
Qualified Income = $77,200 (13k + 22.5k + 41.7k)
Standard Deduction = $24,000
Taxable Income = $77,200
As you can probably calculate on your own, our couple will not owe a single penny in taxes despite $167,400 worth of transactions throughout the year:
$24,000 was converted from a Traditional IRA to a Roth IRA
$15,000 of dividends from the Taxable Account was used to pay the bills.
$45,000 was withdrawn from the Taxable Account to pay the bills.
$83,400 was exchanged within the Taxable Account to eliminate capital gains tied to the Taxable Account.
Tax Credits
Full disclaimer, I haven't fully researched the portion of the tax code yet, so I'm speaking based on a general understanding. Suppose you have a $750 foreign tax credit, it's in your best interest to stretch your income just a bit beyond the 0% tax bracket such that you generate a $750 tax bill. The two will cancel each other out and you'll walk away without paying any taxes. It isn't clear to me if this should be accomplished by additional Tax Gain Harvesting or by additional Roth Conversions, but clearly you'll want to take advantage of one or the other.
Healthcare and Other Subsides
There may be several programs for low income folks that you might want to consider taking advantage of. Medicaid and ACA subsidies are first on my mind because I'll be retiring before I can qualify for Medicare. Like most (all?) income restricted programs, Medicaid and ACA subsidies will almost certainly prevent you from maximizing the 0% tax brackets as we did in the previous example. I haven't done the math to determine whether subsidized health care is more valuable than maximizing that tax-free space, but that is something well worth examining. Although I don't currently have a deep understanding of Medicaid and ACA subsidies, I wanted to document what I've absorbed just by existing in society, that way I can use that information as a starting point for future research/verification...
The ACA introduced something called Premium Tax Credits as a mechanism to reduce the amount of money low income folks have to spend on premiums for policies purchased through an ACA Marketplace. To temporarily oversimplify the matter, this subsidy is structured in a way that requires folks to spend a fixed percentage of their (limited) income on premiums and the subsidy covers the rest. This is fantastic because it fully insulates folks with flat incomes from rising premiums! In order to qualify for these subsidies, your Modified Adjusted Gross Income (MAGI) must fall within a certain range based on the Federal Poverty Line (FPL).
If you live in a state that didn't expand Medicaid as part of the ACA, then your MAGI must fall between 100% - 400% of the FPL in order to receive a subsidy. I'm under the impression that these states have such restrictive requirements for Medicaid that (tens of?) millions of people either make too much to be covered by Medicaid or are disqualified in other ways, but make too little to receive an ACA subsidy...I think this is the primary structural reason why the US has so many uninsured folks relative to other industrialized nations.
If you live in a state that expanded Medicaid as part of the ACA, then your MAGI must fall between 138% - 400% of the FPL in order to receive a subsidy. I'm under the impression that Medicaid expansion was done in a way that ensures almost everybody below 138% of the FPL is covered by Medicaid and therefore ineligible for an ACA subsidy.
To calculate the value of the subsidy (in absolute dollars) you have to start with the cost of the 2nd lowest "silver" plan available in your area. Assuming that plan costs $6,000 for the year, we can use your MAGI to calculate the value of your subsidy:
If MAGI < 100% of FPL, then Subsidy = $0
If MAGI < 133% of FPL, then Subsidy = $6,000 - MAGI * 2.08%
If MAGI <= 300% of FPL, then Subsidy = $6,000 - MAGI * Y, where Y ranges from 3.11% to 9.86% depending on how close your MAGI is to 300%.
If MAGI < 400% of FPL, then Subsidy = $6,000 - MAGI * 9.86%
If MAGI >= 400% of FPL, then Subsidy = $0
Although we've calculated the absolute value of your subsidy based in part on the 2nd lowest cost silver plan, you aren't required to purchase that plan. If you buy a more expensive plan, the subsidy will remain the same (in absolute dollars) and you'll have to spend more than 2.08% of your MAGI on premiums. If you buy a less expensive plan, the subsidy will remain the same (in absolute dollars) and you'll get to spend less than 2.08% of your MAGI (possibly even $0) on premiums...if the cheaper plan actually costs less than the subsidy, I'm not sure if you're refunded the difference or not.
Other Disclaimers
My desired lifestyle in retirement requires a Taxable Income that is low enough to allow for a tax-free retirement. However, for those who plan to have more income in retirement they can still apply these principles to minimize taxation. For example, when performing their yearly Roth Conversions perhaps they'll convert an additional $19,050 to fill up the 10% tax bracket. This will generate a $1,905 tax bill, but for a variety of reasons that may be a price worth paying.
I care very little about leaving an inheritance and so these plans don't account for those considerations in any way. If you care about what happens to your estate when you're gone, there may or may not be a better course of action, I don't know.

My fault, it turns out I can't do basic math in my head. So it would be an extra $26,400/year for life, which at a 3% withdrawal rate is equivalent to having $880,000 in investments.
I didn't expect to say this, but if it were me then I'd find a way to stick it out. Because you seem intent on continuing to work and because you still enjoy teaching, I'm not sure what you'd be gaining by leaving (perhaps I've been a bad listener), but I can see what you'd be giving up. I'd be singing a different tune if you'd said you didn't need the money and wanted to dedicate your time to family, friends, and hobbies or you'd be much happier working another job after all these years of teaching...but right now I don't see what you're getting in exchange for giving up $26,400/year for life.

Getting an extra $14,400/year is certainly something. Using a 3% withdrawal rate that’s the equivalent of having an extra 480k in investments.
Of course if you don’t need the money to increase happiness then you’d be sacrificing however long it takes to earn 4 service credits for what is essentially Monopoly money.
The really interesting situation is if you don’t need the money, but having it would provide tangible and meaningful benefits.

I haven’t researched the ins and outs of annuities, but I just want to second your instinct to be cautious and skeptical.
My general take is that if I give a for profit company my money in exchange for a guaranteed return then they MUST be earning enough to pay me, pay overhead, pay staff, and generate profits. I understand you’re also outsourcing some risk to them, but I’d rather just keep all of that money to myself.
...if we’re talking about 3% guaranteed returns with no time commitments and fees then it sounds interesting, although a very conservative portfolio can generate that expected return. If we’re talking about fees and time commitments, then it sounds rather bad.

Just in case you share my broken psychology, this would be a trap for me because I’m hardwired to want to complete things in their totality and I never want to leave anything on the table. Knowing this about myself, I’d choose to calculate how much I’m giving up by not gaining additional service credit and I’d consider whether or not I really want/need it given the sacrifice I’d have to make to get it.
👀 I don’t like that one bit.
I can’t help but make a quick aside. I’d prefer to never use the term “worth” in the context of wages because it implies people are paid based on the “value” and quantity of what they produce. This certainly isn’t happening in your case and I haven’t found it to be the case generally.
Definitely do the math to make sure you have enough wealth to be secure and to live the way that makes you happy.
After that though, if it were me, I’d make every decision based on trying to maximize happiness...whatever that means for you. The few people I know who are retired have said that they wish they’d have retired earlier, but they held out for reasons that weren’t tied to maximizing happiness (like spending decades being conditioned to work).
No, I’m still grinding away. I’m 34 and because I’d be looking at a longer retirement, I require at least 33x annual expenses to feel safe.
There are a few different acceptable lifestyles I could choose for retirement, each costing different amounts of money and yielding different amounts of happiness. I can afford the cheaper lifestyles right now and maybe towards the end of 2020 I’ll be able to afford the most expensive lifestyle.
So for now, I press on. The thing is, I actually like what I do for a living and I like most of the people I’ve ever worked with, but being forced to do it 8 hours every weekday has a way of turning it into a grind. A 3 day work week (which I’ve taken on for a few months at a time in the past) is much better and interestingly enough, I think my productivity may only decline 10% because I’m more energized and engaged.

Human beings are irrationally fearful and it fascinates me.
I remember reading articles and forum posts explaining that bond prices are inversely related to interest rates and since our interest rates had declined to basically zero, a bond crash was, as a matter of fact, guaranteed and imminent. Sell sell sell! People heard this and feared it the same way they’d fear a stock decline.
Well, rates stayed low throughout most of the Obama presidency and then when we really started raising rates in 2018, the Vanguard Total Bond Fund suffered a stinging 0.08% decline! Of course over that same time period Vanguard Total Stock Market declined 5.17%.
Nobody should worry about their bond fund, unless they’re buying junk bonds.

Your husband is 65, has a pension, covers your healthcare somehow, and works when he feels like it. You’re somewhere below 62. My first instinct would be to STRONGLY consider retirement and enjoy as many healthy years as possible. On the other hand your comments in #4 suggest you might not love retirement the way I would? Regardless, you haven’t laid out the details of your finances enough to analyze the viability of retirement.
1. 62 miles per day (gas, car, and time) is a lot to ask if you’re getting part time wages for work that requires you to be out of the house for more than 40 hours per week. You might more precisely quantify the time and money to get a better idea, but I’m not loving this option.
2. I don’t know how your districts work because I think you’d receive similar pay when switching districts in Florida. I don’t love the idea of a big pay cut with this option either.
3. As I said, this is what I’d be looking into. If you provide a full financial picture, I can give my opinion on the viability of this option. If I were in my 60s, I’d feel comfortable retiring with a portfolio that is 25-33x my annual expenses. I’d feel even safer if my annual expenses had some fluff that I could cut back on during down markets or if I had income from a pension or SS.
I know losing a job (or half a job) is really stressful. It is far from ideal, but everything works out for people that tend to their finances as I’m sure you have. Make space for the negativity, but acknowledge it is temporary too.
...if this were the private sector, I’d consider making a play for volunteering to be fired/quit in exchange for severance. Is that an option in schools?

Since January 1st, I invested 30k additional dollars and earned 85k in market returns. Taken together, that represents a 16% increase. It has been a great quarter and the PE ratio is once again above 30, so I feel nervous.

You’ve gotten some good advice so far.
You can build a three fund portfolio (VTSAX, VTIAX, and VBTLX), buy a target date fund which gets progressively more bond heavy, or a LifeStrategy fund which maintains its stock/bond split. All are great options, which means your biggest decision is what your stock/bond split should be.
You may want to read my Investing 101 page as well as the page I wrote about Vanguard’s 403b.
I’m making the assumption you have a Vanguard 403b, which may not be the case since you can buy Vanguard funds through several vendors.
If you provide more information about your circumstances (risk tolerance, other accounts/investments, pensions, available vendors and their fees, willingness to manage a simple portfolio, etc) then you may get more insightful feedback.

I’ve got just enough curiosity to learn about parts of the tax code that might benefit me. Initially I’m always overwhelmed and think that I’ll just keep it simple and never use what I learned. Then time passes and as I get more comfortable, I just can’t resist.
I felt that way about filing my own taxes without software, using tax advantaged accounts, tax loss harvesting, and now executing a Backdoor Roth.
One topic I haven’t taken on yet is the Mega Backdoor Roth, which is very much different than the Backdoor Roth we’ve discussed in this thread, but it lets you sock away another roughly 40k in a Roth account as opposed to putting it in a taxable account. Who knows, maybe that’ll be on my list after I study paying 0% tax in retirement.

Close. I’m performing two maneuvers that are independent, but related.
Maneuver 1
My Traditional IRA has a bunch of pre-tax money because I rolled over a bunch of old 401ks and I may have even had normal Traditional IRA contributions before my income grew and prevented me from making Traditional IRA contributions.
I’m taking all of this money and moving it into my current employer’s 401k.
Manuever 2
I contributed $5,500 to my Roth IRA at the beginning of 2018. Since then it has grown.
Collectively my wife and I earned more income than ever before and more than I expected. As a result we are in the phase out range for Roth IRA contributions, which means we weren’t allowed to contribute the full $5,500 so that has to be undone in one way or another.
My approach is to recharacterize my Roth overcontribution, which will move that money (and its associated earnings) to my now empty Traditional IRA. However, because I make way too much money to contribute to a Traditional IRA in the normal way, this will be classified as a non-deductible contribution, which means I can’t deduct it from my taxable income, which of course is THE reason most people put money in a Traditional IRA.
Then immediately after that money is recharacterized, I will convert it to a Roth. As a result I will have to pay ordinary income tax on the earnings, but the initial contribution amount I made back in 2018 (the basis) will not be taxed.
So the money that went into the Roth in 2018, it’ll go into a Traditional and then right back to the Roth.
Why two maneuvers?
If I didn’t execute Maneuver 1 then when I went to convert the money back to a Roth, I’d have to pay income tax on more than just the earnings. I’d have to pay income tax on a percentage of the conversion as determined by the ratio of pre-tax to post-tax money in the account, something like: (Pre-tax money in Traditional)/(Total Value of Traditional)
The Loophole
The Traditional and Roth IRA has income restrictions on who can use them, the idea being that wealthy people like me don’t need another tax break.
However, there are no income restrictions on making non-deductible contributions to a Traditional IRA and there aren’t any income restrictions on converting the Traditional IRA to a Roth IRA.
As a result wealthy people can get money into a Roth IRA even when their income is too high to directly contribute to a Roth IRA. This is called a Backdoor Roth and I believe the loophole was introduced in 2006 (tax increase prevention and reconciliation act) and took effect in 2010.
2019
In 2019 this won’t be so complex. I’ll just make a $6,000 non-deductible contribution to my empty Traditional IRA and immediately convert it to a Roth.
It’s only dramatic now because I hadn’t planned for this, my initial contribution was made to the Roth directly, it generated earnings, and I had a bunch of pre-tax money in my Traditional IRA.

Thanks for the link. I gave it a quick read.
Unfortunately, I’ve been side tracked because I realized our taxable income for 2018 caused the allowable Roth IRA contribution to partially phase out.
So after lots of reading I’m in the process of rolling my Traditional IRA into my employer 401k, recharacterizing the overcontribution to be a nondeductible Traditional IRA contribution, filling out the IRS form for that, and the converting the nondeductible Traditional IRA back to a Roth IRA. I’m happy I have the choices to pull this off, but I wasn’t pumped to learn all of this right now, especially with the tax deadline looming.

I think of the future as being quite difficult to predict so I’m not assuming anything about my wife or her job in the future. I’m just wondering out loud in terms of a generic married couple, or a single individual for that matter.
You are right though, married joint filers have to include their income together and if my wife kept working then we’d certainly be paying taxes because her income exceeds the standard deduction by a lot
Are you sure the capital gains rate is applied like that? I always thought that whatever bracket you were in determined the rate for all of your capital gains? Obviously that isn’t how ordinary income is treated for federal income tax, where you get to fill up the lower brackets taking advantage of the lower rates on your way to the higher rate.
...I’m looking into this more it seems like if your ordinary income is in the 0% bracket and adding in your capital gains takes you into the 15% bracket then the 0% rate will be applied to the portion of your capital gains that takes you up to the 15% bracket and the 15% will be applied to the rest of the capital gains. Is that how it works?
Am I wrong in concluding that it is pretty easy for normal people (i.e. people who don’t need a lot of money per year to live) to avoid taxes entirely in retirement? It seems too good to be true so I’m wondering if I’m missing something.

I’ve only casually looked into this, but I’m curious what you guys think.
The standard deduction for a married couple is 24k so every year you could convert 24k from a Traditional IRA to a Roth IRA. This will result in $0 of federal income tax
The upper income limit on the 0% capital gains rate for a married couple is just shy of 80k (presumably the profits from a taxable sale count towards this limit). So you could cash out roughly 56k of profit from your taxable account without paying any tax. I don’t need anywhere near that much money per year to live.
Thats to say nothing about money that is already in a Roth account.
I understand that at a certain age social security or teacher pensions will likely play a roll in increasing taxable income.
I always assumed I’d be paying taxes in retirement, but all of this just occurred to me (research to come) and I think I might have a 0% tax rate during retirement. What do you guys think?

It would be nice if the non-institutional shares were 0.09%.
As things stand now I can’t justify paying almost 3x the price relative to a 3 fund Vanguard portfolio. Then when I start looking at Fidelity’s ZERO fee funds...paying 0.15% begins to feel absurd.
...honestly I don’t understand why their all in one funds cost more than the individual funds contained within them.

Are you 100% sure you don’t have access to any 457b plans? I know the state of New York sponsors an excellent 457.
To answer your question, the best plan available to you is Security Benefit’s NEA DirectInvest, which is an elite 403b. I documented the plan here.
Again are you 100% sure you don’t have access to Roth accounts? If not, then yes when you eventually rollover your employer plan to an IRA, you can convert that IRA to a Roth IRA. The con of doing so is that each dollar you convert will be taxed as ordinary income (at your highest marginal tax rate) in the year the Roth conversion is performed. But that’s the con of Roths in general
I view the Traditional va Roth debate as an optimization that cannot be definitely answered because it requires knowledge you’ll only have in the future. Still, I think most people will be better off with a Traditional. We can discuss in more detail if you’d like, but my case is made pretty well here.

As is documented, I had a terrible time finding anybody at Security Benefit who could speak knowledgeably about NEA DirectInvest.
According to a boglehead user, 800-747-3942 is their direct number and the folks who answer that line are helpful and knowledgeable.
https://www.bogleheads.org/forum/viewtopic.php?t=260609

Perhaps I have an incomplete picture. What exactly were their problems with the fiduciary rule and didn’t they withhold support because they had problems with the regulations?
I don’t find these to be compelling reasons to speak out against the rule:
https://www.etf.com/sections/features-and-news/vanguard-why-proposed-fiduciary-rule-unfit/page/0/1
...then you’ve got Vanguard changing the language that was talked about earlier on this forum. They’re making me feel uncomfortable.

I really only care about two things:
1) Am I well diversified.
2) Am I keeping as much profit as possible.
That’s it. That’s all I care about. The end.
Sure I think Vanguard’s corporate structure is more likely to deliver those two outcomes, but I have to live in reality, not just theory. The reality is that Fidelity has produced well diversified index funds with ZERO fees. I’m waiting a year or so to fully evaluate it, but I’ll be very surprised if I don’t switch.
Thanks to Vanguard, index funds are a commodity, not a product. It doesn’t matter where I buy it, it only matters what I pay for it.
Also I’m not impressed with Vanguard’s shift in culture. Opposition to the fiduciary rule was a clear signal to me that they aren’t on the investor’s side. Sure, I don’t think Fidelity is either. That’s fine, now that we have index funds and a price war over them, the only force we need on our side is an insatiable consumer desire for NO fees...or better yet, interest earned on the money I invest in a fund!